The truth revealed by the American banking industry: consumers are supporting the economy, but they are reaching their limits.

A financial report from Bank of America ( BAC ) clearly reveals the current state of American consumption.

Consumption is Struggling

By the end of 2022, economists were generally pessimistic, with 45% predicting a recession in the U.S. for 2023-2024. What was the result? Consumers didn't let the economy collapse; with just one credit card per person, they slapped those bearish experts in the face.

The CEO of Bank of America stated that consumer resilience is incredibly strong. The activity level of deposits has remained high for a long time, and the frequency of card usage is also skyrocketing—even though credit card interest rates have reached historic highs, people are still accumulating revolving debt. As of the end of 2023, American consumer credit card debt reached $1.13 trillion.

But the problem arises: the growth rate is cooling down. Last year, the consumption growth rate was still 10%, but now it has only dropped to 3-4%. The overdue rate and bad debt rate are rising, with the credit card overdue rate reaching 3.1%—the highest level since 2011.

Signals Revealed by Financial Report Data

There are several details worth noting in the BAC Q1 financial report:

• Revenue down 2%, net profit plummets 12% — Net interest margin has been compressed, which is a common pain point in the banking industry.
• Net write-off amount of 1.5 billion USD, the write-off rate increased from 0.45% in the previous quarter to 0.58%.
• Credit card write-off rate reached 3.62%, rising for several consecutive quarters.

The higher the write-off rate = the more the bank is unable to collect. This directly reflects the deterioration of the repayment ability of the customer base.

The CFO of BAC did provide an explanation: although the overdue rate is increasing, the growth rate is slowing down, and it is expected to stabilize in the next 1-2 quarters. The implication is that consumption can hold up for a while longer.

Why is BAC stronger than others?

The customer quality of BAC is clearly above average. This industry uses FICO credit scores for screening (with a maximum score of 850), and the average score in the U.S. is 715, but:

• BAC Credit Card Customer Average Score: 777 points
• BAC auto loan customer average score: 801 points

In other words, BAC's clients have a stronger ability to withstand risks. If an economic downturn truly occurs, the lower-scoring demographic will be hit the hardest, but the losses on the BAC side may not be as severe.

Key Question: How Long Can It Last?

The BAC management expects that consumer spending will gradually return to normal this year. However, if the delinquency rate continues to rise, consumer spending may see a significant decline, and the risk of recession may resurface. This will be a litmus test for consumer companies and lending institutions.

Core Logic: American consumers are now overextending themselves, barely holding up the economy. However, the signals of credit card debt surpassing 1 trillion and the delinquency rate hitting a 12-year high indicate that this situation can only last for so long.